RISK MANAGEMENT PERCEPTIONS AND TRENDS OF U.S.

CONSTRUCTION

By Roozbeh Kangari,l Member, ASCE

ABSTRACT: This paper discusses the current attitude of large U.S. construction firms toward risk, and de-
termines how these contractors conduct construction risk management. The paper is based on a survey of the
top 100 large U.S. contractors. After discussion of the current views, the results are compared with a risk
survey conducted by ASCE. The study shows that in recent years, contractors have been more willing to
assume risks that accompany contractual and legal problems in the form of risk sharing with the owner. Risks
of this type include change-order negotiations, third-party delays, contract delay resolutions, and indemnifi-
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cation and hold harmless. The survey also found that contractors currently assume the risk associated with
actual quantities of work, a notable difference from the findings of the ASCE survey. Finally, the attitude of
contractors toward the practice of defensive engineering is determined. This is significant, as no previous
survey has addressed or sought to quantify allocation or importance of this task.

INTRODUCTION allocation, and the second examines the importance of dif-

Risk management is an important part of the decision-
making process in a construction company. Risk can affect
productivity, performance, quality, and budget of a construc-
tion project. Risk in a construction project, however, can not
be eliminated, but it can be minimized or transferred from
one party to another. Some important questions that will be
addressed in this paper are as follows: should these risks be
shared? and if so, in what proportion and by whom? what
are the trends in risk allocation? and what is the current view
of risk in the industry?
The construction industry is one of the most dynamic, risky,
challenging, and rewarding fields. Risk inherent in every con-
struction project, is normally assumed by the owners unless
it is transferred to or assumed by another party for fair com-
pensation. The principal guideline in determining whether a
risk should be transferred is whether the receiving party has
both the competence to fairly assess the risk and the expertise
necessary to control or minimize it.
The objective of this paper is to present the perception of
the typical large U.S. contractor towards construction risk
based on a survey conducted of the top 100 construction
contractors. The results of this survey should further clarify
the current perceptions of contractors regarding construction
contracts and the current circumstances in the industry.
The data collected from these questionnaires is compared
to data collected from a similar survey conducted in 1979 by
the American Society of Civil Engineers (ASCE) ("Construc-
tion" 1979). The purpose of this comparison is to identify any
trends in construction risk that will facilitate risk manage-
ment. The goal is to further improve understanding of con-
struction risks as perceived by large U.S. contractors in 1993,
and compare them to the perception in 1979 in an attempt
to project trends in construction risk management. The issues
that concern the U.S. contractor are not new; however, cer-
tain issues have become more critical important as the con-
struction industry has become increasingly litigious. A thor-
ough understanding of current attitudes and trends will aid
contractors in risk management.
The survey on which this paper is based is comprised of
two sections. The first is intended to provide insight into the
current attitudes of U.S. contractors for construction risk
I Assoc. Prof., Civ. and Envir. Engrg. School, Georgia Inst. of Tech-
nol., Atlanta, GA 30332-0355.
Note. Discussion open until May 1, 1996. To extend the closing date
one month. a written request must be filed with the ASCE Manager of
Journals. The manuscript for this paper was submitted for review and
possible publication on January 9, 1995. This paper is part of the Journal
a/Construction Engineering and Management, Vol. 121, No.4, Decem-
ber, 1995. ©ASCE. ISSN 0733-9364/95/0004-0422-0429/$2.00 + $.25
per page. Paper No. 9913.
422/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1995
ferent risk categories. By carefully studying these results, an
understanding will be gained of the current situation in the
construction industry from a contractor's viewpoint. This also
allows a comparison with prior studies on risk management
conducted by Erikson (1979), Bullock (1989), Ammiano (1988),
Knise (1988), Burtch (1979), Casey (1979), McKim (1992),
Lifson (1982), Smith et al. (1991), Nocharli and Haynes (1991),
and Malpas (1990).
PRESENTATION OF QUESTIONNAIRE
The questionnaire utilized by this survey is based on the
survey conducted by ASCE ("Construction" 1979) during a
conference on construction risk and liability sharing held in
Scottsdale, Ariz. in January 1979. The purpose of the survey
was concerned with the identification and allocation of risk.
The survey also investigated contractual arrangements and
minimizing risks (i.e., mitigating losses). These additional
topics will be covered in a future survey. The goal of the
questionnaire were twofold: to obtain as much relative in-
formation as possible and to ensure the greatest possible par-
ticipation by keeping the questionnaire short enough so as
not to lose the contractors' interest.
The surveys were sent out to the top 100 U.S. contractors
based on the list identified by the ENR's top 400 contractors
list ("Top" 1992). A total of 49 responses were received from
the mailing of 100 questionnaires.
COMMENTS ON QUESTIONNAIRE
Column 1 of Table 1 presents the 23 risk descriptions from
the questionnaire, which were in no particular order. The
design of the questionnaire limited the size to one page, so
some of the questions on the ASCE survey were combined
into one question. Most questions are similar to the ASCE
questions, while a fraction are the consolidation of two or
more questions.
The only question that has no counterpart in the ASCE
survey is Defensive Engineering. The proximity of some con-
struction undertakings to existing structures may require time
and money to protect the existing structure. This question
was designed to find out which party should be held respon-
sible if the attempts at protection, or defensive engineering,
fail and the existing structure is damaged in some way.
The responses to each question were divided into two groups:
risk allocation and risk importance. The respondent was to
indicate, in general, how risks should be allocated or shared
by the contractor and the owner. "Owner" represents the
majority of risk going to the owner, "contractor" represents
the majority of risk going to the contractor, and "shared"
represents a sharing of the risk (columns 2-4 of Table 1).

J. Constr. Eng. Manage. 1995.121:422-429.

 TABLE 1. Summary of Risk Allocation and Importance

Risk Allocation Importance- Importance

average on a
scale of Standard Low Mid High
Risk description Owner Shared Contractor 1-10 deviation 1-3 4-7 8-10
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Permits and ordinances 81% 13% 6% 4.7 3.0 42% 32% 26%
Site access/right of way 83% 15% 2% 5.6 3.0 30% 38% 32%
Labor, equipment, and material avail-
ability 2% 10% 88% 6.4 2.6 13% 35% 52%
Labor and equipment productivity 2% 0% 98% 7.6 2.6 10% 21% 69%
Defective design 83% 9% 8% 8.0 2.2 4% 24% 72%
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Changes in work 77% 21% 2% 6.9 2.4 9% 40% 51%

Differing site conditions (lump-sum
contract) 94% 6% 0% 6.9 2.5 15% 32% 53%
Acts of God 58% 40% 2% 4.4 2.5 38% 48% 14%
Defective materials 2% 20% 78% 5.1 2.7 31% 47% 22%
Changes in government regulations
(lump sum) 79% 19% 2% 4.1 2.7 51% 34% 15%
Labor disputes 2% 28% 70% 5.5 2.5 28% 40% 32%
Safety 0% 19% 81% 8.3 2.1 4% 25% 71%
Inflation (lump-sum or unit-price con-
tracts) 6% 24% 70% 4.7 1.9 25% 69% 6%
Contractor competence 15% 14% 71% 7.5 2.5 11% 26% 63%
Change-order negotiations 9% 87% 4% 6.4 3.3 9% 56% 35%
Third-party delays 40% 53% 7% 6.2 2.2 11% 59% 30%
Contract-delay resolution 23% 73% 4% 6.8 2.3 8% 46% 46%
Delayed payment on contract 79% 15% 6% 7.5 2.5 8% 33% 59%
Quality of work 0% 10% 90% 8.2 2.2 6% 15% 79%
Indemnification and hold harmless 8% 79% 13% 6.5 2.4 13% 51% 36%
Financial failure-any party 4% 89% 7% 7.3 2.6 13% 34% 53%
Actual quantities of work 19% 11% 70% 5.8 2.5 21% 45% 34%
Defensive engineering 35% 54% 11% 4.6 1.8 25% 67% 8%

TABLE 2. Summary of ASCE Identification of Risk and Risk Allocation (Construction Risks and Liability 1979)

Importance Risk Allocation

Risk description Not very Important Very Owner 25 50 75 Contractor
(1 ) (2) (3) (4) (5) (6) (7) (8) (9)
Permits and ordinances 33% 30% 37% 74% - 22% - 4%
Delayed site access or right of way 29% 33% 38% 100% - - - -
Availability of labor, material, and
equipment 12% 48% 40% 4% 4% 4% 9% 79%
Productivity of labor 10% 31% 59% - - - 4% 96%
Productivity of equipment 42% 40% 18% - - - - 100%
Defective design 25% 40% 35% 100% - - - -
Changes in work 17% 42% 41% 74% 13% 13% - -
Subsurface conditions: - - - - - - - -
Geology 8% 26% 66% 61% 4% 31% - 4%
Ground water 9% 47% 44% 56% 4% 31% - 9%
Acts of God 40% 49% 11% 78% - 17% - 5%
Suitability, availability, and accessibil-
ity of materials 36% 44% 20% 13% - 22% 13% 52%
Government acts, regulations, and tax-
rate changes" 64% 29% 7% - - - - -
Government acts and regulations - - - 70% - 26% - 4%
Tax-rate changes - - - 70% - 22% - 8%
Labor disputes 17% 51% 32% - - 14% 14% 72%
Accidents/Safety 48% 40% 12% - - 4% 9% 87%
Inflation 6% 19% 75% 17% 22% 52% - 9%
Contractor competence 7% 42% 51% - - 9% - 91%
Change-order negotiations 16% 38% 46% 39% - 61% - -
Environmental 15% 30% 55% 83% 4% 9% - 4%
Public disorder 45% 48% 7% 86% 5% 9% - -
Delayed dispute resolution 9% 31% 60% 52% 9% 39% - -
Delayed payment on contract and ex-
tras 17% 36% 47% 87% 4% 9% - -
Mistakes/defective work 30% 50% 20% 4% - 9% - 87%
Indemnification and hold harmless 27% 32% 41% 71% - 24% - 5%
Owner, contractor, subcontractor, sup-
plier failure 25% 52% 23% - - 45% 15% 40%
Actual quantities of work 53% 38% 9% 62% 4% 26% 4% 4%
..
"DIVIded for purposes of rIsk allocation.

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 Although there are exceptions in every situation, the allo- TABLE 4. Most and Least Important Risk Categories
cation responses represent the average. Level of importance Risk description
The identification of risk was included in the questionnaire (1 ) (2)
under the heading of "importance," (column 5 of Table 1).
Most important Safety
The question was designed to determine the relative impor-
Quality of work
tance of each risk category from a contractor's viewpoint. Defective design
Although importance varies from project to project, the ques- Labor and equipment productivity
tion will elicit a general assessment of the importance of risk. (tie) Contractor competence/delayed payment
Low importance is accorded a value of 1 while the greatest Least important Changes in government regulations
importance is accorded a score of 10. The range of 1 to 3 Acts of God
denotes risk that is not important, 4 to 7 denotes important Defensive engineering
(tie) Permits and ordinances/inflation
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risk categories, and 8 to 10 denotes very important risk cat-

egories.
The results of this survey are summarized in Table 1. The were within the range of risk sharing to allocation to the
findings from the ASCE survey are displayed in Table 2 (note owner.
that the ASCE questionnaire summary report displayed the
risk allocation results in totals and by profession; this allowed Importance of Risk
the extraction of contractor responses).
The five most/least important risk categories are shown in
Table 4. For a scale of one to ten, the standard deviations
SURVEY RESULTS are relatively high, thus showing an industrywide lack of con-
sensus for scaling of risk categories. Some companies have
Allocation of Risk probably been hindered by some risks more often than others,
and thereby place more importance on ensuring that problems
The responses to the survey can be placed into the following
of the same type don't recur. As illustrated in column 5 of
categories: allocation of the risk to the contractor, allocation
Table 1, the risk categories deemed most important ranged
of risk to the owner, or a sharing of the risk. The risk factors
from 8.3 for safety to 7.5 for both contractor competence and
in which the respondents overwhelmingly favored using these
delayed payment on contract. The risk categories deemed
methods are highlighted in Table 3.
least important ranged from 4.1 for changes in government
These risks are listed in the order of responses for the
regulations to 4.7 for inflation, and permits and ordinances.
allocation method. For example, as shown in Table 1, labor
and equipment productivity had 98% responses in favor of
the contractor assuming the risk, while labor disputes had ASCE VERSUS PROPOSED SURVEYS
70%. For a risk to be fully appropriated to an allocation Risk Allocation
method, it requires at least a 70% response rate.
According to the survey, a total of seven construction risks The ASCE survey found that contractors were less willing
should be allocated to the owner, ranging from differing site to accept, or even share risk, preferring that the owner accept
conditions with a 94% to changes in work with a 77% response responsibility for construction risk. The findings of the
rate as shown in Table 1. Responses in favor of sharing the present paper, however, show that contractors are more will-
risk ranged from 89% in favor of sharing the risk of financial ing to accept and share risk. Similarities of responses to risk
failure of any party, to 73% for contract delay resolution risk. allocation in both surveys will be discussed first, followed by
Only three questions pertaining to risk allocation had mixed the differences.
results. A majority of their responses to these three questions The first risk allocation category that will be discussed con-
cerns the construction risks that are agreed to be solely the
responsibility of the contractor, as found in both surveys. The
TABLE 3. Risk Allocation most overwhelming agreed upon risk subject dealt with the
Risk allocation Risk description
productivity of labor and equipment. The responses in both
(1) (2)
surveys recorded near 98% in favor of the contractor assum-
ing this risk. The remainder of the contractor risks had re-
Contractor Labor and equipment productivity
Quality of work
sponses in favor of at least 70% that the contractor be the
Labor, equipment, and material availability party to assume the risk.
Safety Responses to the ASCE survey designated 10 risk cate-
Defective material gories, two of which were designated unanimously, as the
Contractor competence sole responsibility of the owner, while responses to this survey
Inflation designated only seven. Of these seven factors, only one-
Actual quantities of work
differing site conditions-was not designated in the ASCE
Labor disputes
Owner Differing site conditions survey, which showed a large majority of contractors re-
Defective design sponding that this risk should be shared.
Site access/right of way Responses to the two surveys showed marked differences
Permits and ordinances in opinion regarding third-party delays, acts of God, indem-
Changes in government regulations nification, and actual quantities of work. In the ASCE survey,
Delayed payment on contract
Changes in work
62% of respondents considered actual quantities of work the
Shared Financial failure-any party risk of the owner whereas respondents to the current survey
Change-order negotiations considered this risk as belonging to the contractor. Unlike
Indemnification and hold harmless the ASCE survey, in which indemnification is the sole risk
Contract-delay resolution of the owner, this survey designated it as a shared risk. Sim-
Undecided Acts of God ilarly, third-party delays and acts of God have shifted from
Third-party delays
Defensive engineering
owner responsibility to somewhere between shared and owner
responsibility. In all these four risk categories, allocation of
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J. Constr. Eng. Manage. 1995.121:422-429.

 TABLE 5. Risk Allocation Shift Towards Owner and Contractor risk categories, in which the shift was in favor of the owner
Risk allocation shift Risk description
assuming more responsibility.
(1 ) (2)
The survey revealed that contractors have, in recent years
been more willing to become involved in dispute resolution.
Toward owner Differing site conditions
This is evidenced by the allocation shift in change order ne-
Financial failure-any party
Toward contractor Acts of God gotiations, third-party delays, contract delay resolution, and
Defective materials indemnification and hold harmless. The shift towards con-
Inflation tractors regarding the risk of Inflation probably has a great
Change-order negotiations deal to do with the change in the inflation rate. The risks
Third-party delays regarding acts of God and defective materials have decreased,
Contract-delay resolutions
as they can now be covered by insurance.
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Indemnification and hold harmless

Actual quantities of work The risks in which allocation has shifted towards the owner
are those that are more difficult for the contractor to control
or protect himself from. For example, extensive differing site
TABLE 6. ComparIson of Risk Importance
conditions or a defaulting party can ruin a contractor who is
Level of Risk trying to perform under a lump-sum contract.
Importance
ASCE Present Importance of Risk
Risk description survey survey The overall comparison, shown in Table 6, illustrates the
(1 ) (2) (3) following ranges of responses: 1-3 is low (not very impor-
Permits and ordinances High Low tant), 4-7 is mid (important), and 8-10 is high (very impor-
Site access/right of way High Mid tant). The results show that nine risk categories remained in
Labor, equipment. and material availability Mid High
the same range, while seven categories shifted to a higher
Labor and equipment productivity High High
Defective design Mid High range, and six fell to a lower range. The construction risks
Changes in work Mid High that experienced shifts in importance are summarized in
Differing site conditions High High Table 7.
Acts of God Mid Mid Four of the risks that shifted to greater importance are
Defective materials Mid Mid ones that the contractors have allocated to themselves, two
Changes in government regulations Low Low
Mid Mid
have been allocated to the owners, and only one, financial
Labor disputes
Safety Low High failure, is a risk that was designated as shared. Safety expe-
Inflation High Mid rienced the greatest shift towards importance, from a rating
Contractor competence High High of low on the ASCE survey to a rating of high on this survey.
Change-order negotiations High Mid Permits and ordinances experienced the greatest shift away
Third-party delays Mid Mid from importance, as it was designated an owner risk. Contract
Contract-delay resolution High Mid/High
Delayed payment on contract High High
delay resolution experienced a slight shift, from a rating of
Quality of work Mid High high importance, to a rating of between high and mid im-
Indemnification and hold harmless High Mid portance.
Financial failure-any party Mid High
Actual quantities of work Low Mid ANALYSIS OF TRENDS

TABLE 7. Shifts to Higher and Lower Importance

As a result of the findings discussed thus far, this section
examines the trends that are occurring in the area of con-
Risk shifts Risk description struction risk management. The construction risks that have
(1) (2) consistently been allocated to either the owner or the con-
Higher importance Safety tractor are reviewed. In both surveys, eight of the 23 risks
Labor. equipment, and material availability received consistent responses in allocation. The risks that are
Defective design consistently allocated to the contractor and the owner are
Changes in work listed in Table 8.
Quality of work
Financial failure-any party
The first three risks listed in Table 8 are those that con-
Actual quantities of work tractors consistently favor assuming. Not only did contractors
Lower importance Permits and ordinances overwhelmingly designate them as their responsibilities, in
Site access/right of way both surveys, but current writings by contractors and aca-
Inflation demics also support this position. For the first two risks, this
Change-order negotiations view is supported in papers written by the Steering Committee
Contract-delay resolution
Indemnification and hold harmless
("Executive Summary" 1979), as part of the ASCE survey;

TABLE 8. Risks Consistently Allocated to Contractors or Owners

responsibility is shifting away from the owner toward the Risks consistently
contractor. Neither survey agreed that anyone risk should allocated Risk description
be a shared responsibility. However, the ASCE survey des- (1 ) (2)
ignated inflation as a shared risk whereas this survey consid-
Contractor Labor, equipment, and material availability
ered it a contractor risk. Labor and equipment productivity
The study also shows that the attitude of the respondents Quality of work
had shifted towards owner and contractor for the 10 risk Owner Permits and ordinances
categories highlighted in Table 5. This shift has been mainly Site access/right of way
toward the contractors assuming responsibility by a margin Defective design
of eight to two. This shows that contractors believe that they Changes in work
Changes in government regulation
are more capable of handling risk in all but two of the eight
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1995/425

J. Constr. Eng. Manage. 1995.121:422-429.

 Bullock (1989); and Casey (1979). Quality of work is ac-
knowledged as a contractor risk by Erikson (1979), Casey
(1979), and Knise (1988). No dissenting views were uncovered
for any of these risks. Therefore, it is expected that contrac-
tors will continue to consider the construction risks resulting
from quality of work; labor, material, and equipment avail-
ability; and labor and equipment productivity their respon-
sibilities.
The last five risks are those that contractors consistently
allocate to the owner. Again, no dissenting opinions were
found. The Steering Committee (Executive Summary 1979)
agreed that all of these risks should be shouldered by the
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Soil testing equipment, such as the dilatometer, which be-
came available commercially in the United States has become
more sophisticated in recent years (Kulhawy and Mayne 1990).
With this technology, the owner can conduct a more thorough
examination of subsurface conditions. In addition, contrac-
tors believe that owners should utilize a differing site con-
dition contract clause similar to the one found in the Federal
Acquisition Regulation (Bullock 1989). These factors transfer
the risk of differing site conditions from the contractor to
owner.
Recent economic conditions also tend to force a certain
attitude toward risk. As a result of recessions, the number of

owner, and concurring views can be found in the writings of
Bullock (1989), Casey (1979), Nocharli (1991), and Smith
et al. (1991). Erikson (1979) described changes in govern-
ment regulation as an "uncontrollable risk." Thus, he made
no attempt to allocate risk in this situation; however, the
remainder of the risks were allocated to the owner.
All of the construction risks presented thus far have been
identified as possessing a trend of consistency. Contractors
have perceived these risks as belonging to either themselves
or owners and no changes have been recognized for these
attitudes.
The balance of the construction risks examined by the
present paper were found to possess differing views and shifts
in allocation. Highlights of the views are reviewed in Table
9. The allocation column contains symbols that refer to au-
thors who have a concurring views with respective responses.
The ASCE survey is denoted by "A" and the present survey
is denoted by "S." The purpose of Table 9 is to allow the
reader to quickly inspect the views of selected authors as
illustrated by the symbols in the table.
If the surveys contain stronger views for one type of risk
allocation, the symbol will double. For example, if the con-
tractors responding to this survey had strong views in both
the owner assuming the major portion of a risk and the risk
being shared, the corresponding symbol "S-S" would occur
in column 3 (owner and contractor), between owner and shared
allocation. The following section attempts to explain the shift
in attitudes about risk responsibilities.
Contractor competence is conceded industrywide as a risk
to be borne by the contractor. The dissenting view that is
shown in Table 9 was recorded by Erikson (1979). The same
attitude was found for delayed payment on contract, that it
is the responsibility of the owner, except in Erikson (1979).
business failures generally increases. Such situations can ex-
plain the desire to share the risk of financial failure and in-
flation. As the probability of failure increases, contractors
understandably prefer to share this uncontrollable risk, thereby
limiting vulnerability. However, as inflation has been de-
creasing, so has the threat of this risk; therefore, the con-
tractor is more willing to assume this risk.
Many large construction firms today retain lawyers or main-
tain them in their home office. Thus, they feel more confident
to engage in negotiations. The resulting trend is that con-
tractors are likely to consider change order negotiations and
contract delay resolution as well as indemnification as con-
struction risks that are suitable to be shared. Although they
may take on more financial responsibility, they are in a po-
sition to expedite resolution of legal matters. The same at-
titude certainly carryover to the risk associated with third-
party delays as well.
The use of insurance has also increased, which can explain
why contractors are more willing to assume certain risks.
Contractors of today can adequately insure themselves from
uncontrollable risks, such as defective materials and defensive
engineering. For the same reason, the risks involving acts of
God were easier for the contractor to handle. The view in
that respect still contains some owner allocation, since a time
extension is usually required.
The risks that accompany safety and labor disputes are
overwhelming considered to be contractor responsibility. Only
one conflicting opinion was located for each category. The
lone views can not be considered to accurately reflect the
current status of contractor feelings. Therefore, this study
shows that, in the past, contractors have felt that these risks
should be assumed by them, and that same attitude persists
today.

TABLE 9 Allocation Views of Selected Authors

Allocation of Risk
Owner and Contractor and
Risk description Owner contractor Shared owner Contractor
(1 ) (2) (3) (4) (5) (6)
Differing site conditions 2, 3, 5,7, S A-A - - -
Acts of God A S-S - - -
Defective materials - - - A-A 2, S
Labor disputes 4 - - - 5,7, A, S
Safety - - 2 - 1,4,5,6,A,S
Inflation 4 - 7, A - S
Contractor competence - - 5 - 2, A, S
Change-order negotiations - A-A 3,5, S - -
Third-party delays 2,4, A S-S - - -
Contract-delay resolution - A-A, 7-7 5,S - -
Delaycd payment on contract 2,7, A, S 5-5 - - -
Indemnification and hold harmless 5, A - S - -
Financial failure-any party - - 4, S A-A -
Actual quantities of work - A-A - - S
Defensive engineering - S-S 5 - 6
Note: A = ASCE survey; S = Survey by this paper; 1 = Ammlano (1988); 2 = Burtch (1979); 3 = Bullock (1989); 4 = Casey (1979); 5
Erikson (1979); 6 = Knise (1988); 7 = Executive Summary (1979); and double symbol = stronger views for one type of risk allocation.

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J. Constr. Eng. Manage. 1995.121:422-429.

 The shift in opinion surrounding actual quantities of work
has been dramatic. The ASCE survey found the allocation
to be located between the owner and shared, while the re-
spondents in this assigned risk to the contractor. This rep-
resents a trend in the attitudes of contractors to assume more
of the risk for the quantities of work in the bidding process
as well as in the submitting of in-progress work payment
schedules. This attitude is important in the performance of a
lump-sum contract, since the price is based on a certain amount
of work. On the other hand, this survey found that changes
in work and change-order negotiations are felt to be owner
risks, thereby representing a trend in which contractors are
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not as concerned with obtaining payment for a change in the
work. Therefore, by taking the responsibility for submitting
in-progress payments, they are not as concerned about re-
ceiving payments.
The risk that underwent the larger shift towards greater
importance was the safety. This is due to the fact that con-
tractors are more concerned about the welfare of workers
whose livelihood is construction. The risks involved labor,
material and equipment availability, quality of work, and ac-
tual quantities of work, have all been allocated to the con-
tractor as well. As allocation to the contractor increases, so
will, the importance accorded to the risk.
The recessionary period that the country has been expe-
riencing could account for the trend toward greater impor-
tance accorded to financial failure risk. More firms are cur-
rently failing, thereby causing greater concern. As the economy
of country improves, the importance of this risk will likely
decrease.
When a contractor is performing under a lump-sum con-
tract, a defective design or owner changes could seriously
affect the contractor. This is a view to greater importance
that can be explained by only having contractors relate to the
importance on this survey, rather than incorporating a broad
spectrum from the construction industry as a whole.
In summary, certain construction risks have always been
and will probably continue to be considered the domain of
either the contractor or the owner, as presented in Table 8.
The only trend for these risks is that they will always be
considered allocated to one of the two parties.
Other risks that are consistently allocated are safety and
labor disputes, and contractor competence. Since contractors
are better able to control these risks or take action to curtail
or prevent their occurrences, they consistently allocate these
risks to themselves. The trend of these construction risk sug-
gests that they will remain in the hands of the contractor.
Actual quantities of work and defective materials have shifted
from the owner to the contractor, and the writer believes that
this trend will continue.
The trend is for contractual/legal matters to be shared risks,
in light of contractors' current practice of retaining or main-
taining legal personnel on their payrolls. This covers the risks
of change-order negotiations, third-party delays, contract de-
lays resolution, and indemnification and hold harmless.
The risks concerning the economic condition of the country
will always be in a state of flux. In the near future, therefore,
it is predicted that the views of contractors concerning infla-
tion and financial failure will remain the same. As the country
pulls out of the recession, the allocation of risk will shift
toward the contractor; as the inflation rate begins to climb,
the allocation will revert back to a sharing mode. Differing
site conditions and delayed payment on contract risks will
continue to favor the owners, as they are in the most favorable
position to assume the burden of this risk.
Finally, the trend is for acts of God and defensive engi-
neering to be shared risks. They are for the most part un-
controllable, but they can be adequately covered by insur-
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1995/427
J. Constr. Eng. Manage. 1995.121:422-429.
ance. However, some risk will still be allocated to the owner
since contractors will be in need of a time extension so that
liquidated damages will not be incurred.
SUMMARY
The important findings of this survey are briefly summa-
rized below. The current attitude toward allocation and im-
portance of the risk as well as the trend for the future are
briefly reviewed for each risk.
Permits and Ordinances
The results of this survey indicate that the owner should
be responsible for this risk. Contractors do not think of this
risk as important. The relative importance placed it as fifth
to the last. This risk has been consistently allocated to the
owner and will continue to do so.
Site Access/Right of Way
The current view of contractors is that this risk needs to
be delegated to the owner. The constant view of contractors
is that this is an owner risk, so the allocation of risk shifting
is not foreseen. This is a risk which the results indicated a
mid-level importance.
Labor, Equipment, and Material Availability
The results indicated that this risk belongs to the contrac-
tor. The prevailing attitude always allocates availability to the
contractor, and that allocation is expected to remain constant.
The importance of this risk places it in the upper middle
range.
Labor and Equipment Productivity
Productivity is the risk that scored the highest in allocation
to the contractor, and this view presents itself as being a
constant. The importance to contractors positions itself as the
third greatest risk.
Defective Design
Survey indicates that the owner must assume this risk. The
conventional wisdom consistently allocates this risk, the third
most important, to the owner, and its importance remains
high, especially for contractors working for a lump-sum or
unit-price contract.
Changes in Work
The survey shows the owner to be responsible for this risk,
and attitudes are not expected to change. This risk ranked in
the upper mid range.
Differing Site Conditions
The results overwhelming assigned the owner responsible
for this risk, in contrast to the attitude expressed by the con-
tractors in the ASCE survey. The trend toward having the
owner assume more of the risk is expected to continue. The
importance was fairly high, and this is an attitude that has
remained constant.
Acts of God
The survey revealed that this risk should be either a shared
or owner responsibility. The attitude the owner should as-
sume the majority of the risk has softened, perhaps with the
more widespread use of insurance. The tendency to allocate
 risk somewhere between owner and shared responsibility will
continue. This risk was determined to be of little importance.
Defective Materials
Although of relatively minor importance, this risk was found
to be the responsibility of the contractor. The trend con-
cerning allocation has shifted toward the contractors. Since
they are most certainly in the best position to handle this risk.
Changes in Government Regulation
Results of the survey find that owners best handle this risk.
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The risk was found to have the lowest importance. This risk
is expected to remain that of the owner.
Labor Disputes
The results assign contractors responsible for this risk, and
it is expected to continue as such. However, its importance
only lies in the mid range.
Safety
The survey shows that contractors must assume this criti-
cally important risk. Assigning it the highest importance rat-
ing, contractors believe that they have and will continue to
have sole responsibility for this risk in the future.
Inflation
The survey shows that this risk depends on the economic
condition of the country. As the inflation rate increases, the
owner tends to assume more of the risk and the importance
rating soars; as the inflation rate decreases, the contractors
are more willing to assume the risk and the importance de-
creases. Currently, the inflation rate is low, so contractors
are more willing to accept the risk that accompanies it.
Contractor Competence
The survey shows that contractors have traditionally as-
sumed this risk, as evidenced in both surveys. Contractors
are expected to continue to assume responsibility for their
competence and ranked the risk as having low importance.
Change-Order Negotiations
The survey indicates a shift from owner to shared risk. It
is expected to remain a shared risk, the level of importance
being in the upper mid range.
Third-Party Delays
The results denote a shift from owner to shared risk. The
increased employment of lawyers by the larger contractors
reduces the importance of this risk and allows them to take
part in a negotiation/dispute resolution proceedings.
Contract Delay Resolution
The results again denote a shift from owner to shared risk.
The trend is expected to show an increase in the number of
contractors who favor a risk sharing approach for the solution
of problems of this type. Contractors assign high importance
to this risk.
Delayed Payment on Contract
The results indicate that owners assume this risk, and that
they will continue to do so. This risk is considered to be
428/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1995
J. Constr. Eng. Manage. 1995.121:422-429.
important by contractors, as it ranked fifth in relative im-
portance.
Quality of Work
The survey show that contractors consistently assign this
task to themselves. They also rank it extremely high in im-
portance, second only to safety. The trend concerning quality
is clear: contractors are expected to consider this an important
risk that is theirs alone to handle.
Indemnification and Hold Harmless
The results show this risk to be considered a shared re-
sponsibility. Not unlike other categories that fall under a
heading of contractual/legal, contractors have changed from
allocating this risk to the owner to considering it a shared
risk, and it is expected to remain shared in the future. Re-
spondents placed this risk in the upper half of all risks in level
of importance.
Financial Failure-Any Party
The survey shows that this risk, like inflation, is a result
of economic conditions. While in a recessionary period, the
importance increases and the contractor desires a risk sharing
approach, in a period with a strong economy, the importance
declines and the contractor is much more willing to accept
the risk that accompanies financial failure.
Actual Quantities of Work
The survey shows total shift in attitude, with the ASCE
survey assigning this risk to the owner, while this survey as-
signed it to the contractor. This trend will persist, that con-
tractors will remain in favor of assuming this risk. The im-
portance also rose slightly.
Defensive Engineering
The survey indicates that this risk is best shared; however,
determining a trend for this risk is difficult since no previous
survey have addressed this task. The importance of this task
was considered to be low, and there is a general consensus
among contractors as to it's unimportance, as the standard
deviation was the lowest of the survey.
CONCLUSIONS
Current views of contractors regarding allocation and im-
portance of risk were presented. An analysis of trends for
the future of risk management was also presented. The most
consistent attitudes concerning allocation of construction risk
were presented in Table 8. Attitudes toward risk allocation
that have shifted were also presented in this survey. In recent
years, contractors have been more willing to assume risks that
accompany contractual and legal problems in the form of risk
sharing with the owner. Risks of this type include change-
order negotiations, third-party delays, contract delays reso-
lutions, and indemnification and hold harmless.
Attitudes toward risks that are determined by economic
conditions were also discussed. These risks pertain to inflation
and financial failure. The lower the inflation rate, the more
risk a contractor is willing to assume. However, during pe-
riods in which a higher number of business failures occur, the
contractor is less willing to assume risk, and thus allocate
more responsibility to the owner.
The survey also found that contractors currently assume
the risk associated with actual quantities of work, a notable
difference from the findings of the ASCE survey. The risks
associated with acts of God were also found to have shifted
 towards the contractor, although not nearly to such an extent.
Finally, the attitude of contractors toward the practice of
defensive engineering was determined. This is significant, as
no previous survey has addressed or sought to quantify al-
location or importance of this task.
RECOMMENDATIONS FOR FUTURE RESEARCH
Future studies that relate the views of contractors to risk
management need to be conducted. The studies should focus
specifically on the topics of contractual/legal and economics
as these risks are among the most volatile, and subject to
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change. Shifts in risk allocation and importance of financial
failure should be checked under a differing set of economic
conditions. Contractual and legal risk attitudes should also
be reexamined periodically to determine their current status.
Certain risks might not need to be examined in such detail,
such as the ones listed in Table 8, as well as differing site
conditions, labor disputes, safety, contractor competence, and
delayed payment on contract. These risks were consistently
allocated to the contractor and owner in both surveys and all
literature sources, with the exception of one dissenting opin-
ion. Therefore, it is expected that these risk allocations will
remain the same unless wide-scale changes take place in the
construction industry.
Three risk attitudes should be reexamined in future studies:
acts of God, which underwent a slight shift of allocation to
the contractor, should be reexamined to determine if this risk
is still in a state of flux; actual quantities of work should
undergo similar reexamination; and defensive engineering,
examined for the first time, needs to be reexamined to de-
termine a trend.
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / DECEMBER 1995 / 429
J. Constr. Eng. Manage. 1995.121:422-429.
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